Economic Integration Explained | Free Trade Area | Custom Union | Common Market | Economics

hello and welcome to ecoholics

in this video we will understand

different types of economic integration

now economic integration plays an

important role in order to

grow the gdp of a particular country at

a higher pace

so what countries have been doing since

past we can say since past 200 years

especially in the formal structure

countries are making unions

and these unions plays an important role

especially in the international trade

now in international trade we have

certain theories called

the theories of trade diversion and

trade creation

so trade diversion and trade creation

are associated with

the concept of economic integration

now economic integration are of

different different types

the first one is free trade agreement or

free trade area

on this particular suppose there are

four or five members suppose for example

there are five members and this is the

hypothetical example

if we have five members free trade area

means these countries

are having their groupings and they are

trading with each other

without any tariff here tariff means the

taxes on

imports and exports that countries are


suppose india is importing something

from bhutan

they are putting taxes if india is

exporting certain goods and items

to nepal then nepal will

impose certain kind of taxes on indian

goods but if we have

south asian free trade agreement for

example it means there is no tariff

whenever we are trading with the

countries of that particular free trade

area or the agreement membership now

here the example is

south asian free trade agreement north

american free trade agreement

where we have canada u.s and mexico so

there are several other examples where

countries are trading without any tariff

the second one that we have is known as

custom union

now if you think about the free trade

area there were

five countries in my example now in

these five countries

in the free trade area if suppose they

are trading with a non-member suppose

the sixth one

so it means suppose for example india is

this and india is trading with suppose

other country called japan now in the

free trade area

india has been removing all the tariffs

so there is no tariff among these


but when india is trading with other

countries non-member countries

india can put any kind of tariff or any

value of tariff

now this another country can also do the

same but there must be some different

different rates

but in the custom union all the members

whenever they are trading with the

non-members they are having

same amount of tariff so it means

that in a custom union if india is

trading with japan

the tariff rate is 10 then bangladesh

bhutan another country will also

trade at the same percentage rate or

same percentage

tariff rate so this is a major

difference where in the free trade area

each country of that free trade


is having different different tariffs

tariff structure

while trading with the non-member but in

the custom union

these countries are having one important


that is whenever they are trading with

non-member they will put tariff

at the same percentage now the third one

that we have

is known as the common market now in the

common market this goes beyond

the custom union in the common market

we have the mobilization of labor and

capital as well

so in the common market it means suppose

these are the five countries in the

common market

here means the people the labor from one


can go to another country with seamless


it means there is no hurdle like for

example the european union

the european union previously and right

now also

is having the a the called as the common

market where

the labor from germany can work in

france without any restriction so this

is what we call the common market

and the fourth one is economic union now

economic indian goes beyond the concept

of common market

in economic union apart from the

seamless movement of labor and capital

countries also integrate or collaborate

on the level of monetary policy fiscal

policy and the

other tax policies as well so in

economic union the perfect example is

european union

where they have common monetary policy

as well

controlled by european central bank and

they have also

their own currency known as euro so that

is the best example for

economic union and these are the four

types of economic integration

present in international trade scenario

or international economics

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